Article

Two merchants pull the plug on NFC (and Apple Pay) as MCX looms

CVS and Rite Aid turned off NFC support last week, raising the ire of Apple supporters who vowed to take their business to Walgreens.

October 31, 2014 by Will Hernandez — Editor, NetWorld Media Group

The Merchant Customer Exchange is still months away from officially launching its CurrentC mobile wallet, but its mere existence puts some retail partners in a bad position with consumers as it relates to any NFC-enabled mobile-payment scheme.

CVS and Rite Aid, two MCX partners, have killed support for Apple Pay in the last few days, but also for Google Wallet and Softcard. Both chains switched off NFC support at their point-of-sale terminals. Between them, the two merchants operate 12,000 locations across the U.S.

CVS and Rite Aid were never official Apple Pay partners, but the scheme worked at those locations because their terminals supported NFC technology.

Rite Aid turned off NFC support 24 hours after Apple Pay became available to consumers with the new iPhones.

Slashgear said it had obtained a Rite Aid internal document through an intermediary that laid out the pharmacy chain's decision not to accept Apple Pay and what store associates should say in response to customers' inquiries. While the document made no specific reference to MCX (which has said that it will not exercise exclusivity rights for its wallet), Rite Aid said it would launch its own mobile wallet next year. MCX gives its retail partners the ability to add to a standalone app using technology in the venture's CurrentC-branded mobile wallet.

CVS followed Rite Aid's actions on Saturday, almost a full week after Apple Pay launched. A shift supervisor who works at a Georgia location tweeted Saturday morning that CVS stores received an email saying that the company had disabled NFC at the point of sale.

@Ihnatko I'm a Shift Supervisor and corporate sent out an email to the stores telling us that as of today, NFC was turned off.

— Jonathan Sprewell (@jsprewell) October 25, 2014

CVS was an original supporter of the Softcard mobile wallet (previously known as Isis). Softcard chose not to respond directly to the CVS situation and instead focused on the technology issue at hand.

"Softcard selected NFC due to its security and ease of use," a spokesperson wrote in an email to Mobile Payments Today, a sister publication to ATM Marketplace. "NFC is emerging as an industry standard, and today, more than 200,000 merchant locations across the U.S. support it. We expect this number will only continue to grow."

The National Retail Federation released a statement Monday about the pharmacies' decision to scrap NFC technology support. 

"There are a number of new technologies reaching the marketplace, and a number of other systems on the horizon," the trade group said in a press release. "It is easy to second-guess why a specific retailer chooses one technology or another, or what payments they will or will not accept, but you can be sure that the bottom line consideration is what is best for their company and their consumer."

Apple supporters flocked to Twitter to express their displeasure with the decisions by RiteAid and CVS to unplug support for NFC-enabled mobile payments, and they vowed to take their business to Walgreens, which was an original Google Wallet merchant.

Well I guess shopping at @riteaid and @CVS_Extra is out! So much for competition! #ApplePay

— Brian D. Zieroth (@bdzierot) October 25, 2014

@Walgreens Without a doubt spending my money at your business over @CVS_Extra thank you @Walgreens for supporting #ApplePay and technology

— George Rodriguez (@6e0r9e) October 25, 2014

On the rare instances when they have appeared at industry conferences and discussed the scheme, MXC executives have insisted that CurrentC was not the result of merchants' continuing battle with the card networks over interchange fees. But the past actions of retail heavyweights say otherwise.

Walmart, which is viewed as the de facto MCX ringleader, is the most prominent merchant leading the charge against the networks over interchange. In March, the retailer filed a lawsuit against Visa alleging that the network colluded with financial institutions to fix interchange rates. Walmart is seeking $5 billion in damages.

CurrentC relies mostly on ACH rails to settle transactions, bypassing the networks — and their interchange fees.

"CurrentC will offer customers the freedom to pay with a variety of financial accounts, including personal checking accounts, merchant gift cards and select merchant-branded credit and debit accounts. Additional payment options will be available in the coming months," MCX said in the announcement about the CurrenctC brand.

MCX launched CurrentC this summer in what it called a private pilot in selected markets nationwide (and acknowledged this week that hackers had stolen the email addresses of pilot participants — not an auspicious start). It plans to expand the pilot through year-end with regional and national rollouts in 2015.

Not much is known about CurrentC beyond press releases, since MCX continues to dodge media interview requests. MCX CEO Dekkers Davidson is slated to give a keynote speech at next week's Money2020 conference in Las Vegas.

Apple supporters have been quick to blame the actions of CVS and Rite Aid on MCX. And it certainly is a factor. But even if MCX didn't exist, merchants could argue that there's no reason for them to support Apple Pay.

From the moment Apple announced its mobile payments scheme, it was clear that there was no incentive for the merchant to accept it. Apple partnered with financial institutions and cut deals to receive a slice of the interchange fee for Apple Pay transactions. Jeffries & Co. reported that the rate is 15 basis points per credit tap and a half-cent per debit tap.

There's nothing to stop the networks from raising interchange fees again to recoup the difference. In this scenario, the merchants pay more and then pass the cost to consumers.  

MCX's exclusivity rules might be at the heart of this particular issue with CVS and Rite Aid, but will merchants who currently are not accepting Apple Pay really want to do so if interchange rates go up for them? It might not matter for large merchants who can better afford to take the hit, but small businesses might think twice about it.

photo courtesy of tony hall | flickr

About Will Hernandez

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Will Hernandez has 14 years of experience ranging from newspapers to wire services and trade publications. Before becoming Editor of MobilePaymentsToday.com, he spent two years as the content manager for PaymentsJournal.com, a leading payments industry news aggregator and information hub published by Mercator Advisory Group. Will spent four years covering the payments industry as an associate editor for multiple publications in SourceMedia's Payments Group based in Chicago.

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